14 July 2006
Every household in Britain is losing around £180 per year because of fraud and error in the government's benefit and tax credits systems, figures released by opposition MPs this week suggest.
A series of reports into Chancellor Gordon Brown's flagship tax credits regime this week revealed that fraud and error in the system was as high as £1.28bn in 2003/04.
But Liberal Democrat work and pensions spokesman David Laws estimated that total losses through the welfare system had reached around £4.3bn annually - £180 per household.
Speaking to Public Finance on the eve of the Revenue and Customs department's announcements on July 11, Laws said that tax credits losses had reached 'abhorrent' and 'unjustifiable' levels.
Edward Leigh, Conservative chair of the Commons Public Accounts Committee, said: 'It is an appalling state of affairs when approximately £1 in every £10 paid out in tax credits goes to someone who is not entitled to it.
Money is leaking from the system faster than water from London's antiquated pipes.'
The figures for 2003/04, released by the R&C on July 12, are substantially higher than past estimates and reflect a much more reliable calculation now used by the government. Following a Commons statement on combating fraud by paymaster general Dawn Primarolo, the National Audit Office revealed it had qualified part of the R&C's annual accounts for the fourth year in succession.
NAO auditors estimated that the R&C overpaid tax credits by £1.8bn, and underpaid other claimants by £556m. The spending watchdog also estimated that similar levels of fraud and error could be expected for 2005/06.
David Varney, R&C chair, recently admitted that the tax credits system, which has helped to lift hundreds of thousands of low-income families out of poverty, was last year subject to 'virulent' attacks by criminal gangs who identified easy methods of bypassing government checks.
R&C officials closed an online applications portal that had been used by criminals – and have implemented new measures to reduce error and tighten security - but future official figures are expected to reveal high levels of fraud for the period. The NAO estimated that around £55m was lost to fraud in that period alone.
The ease with which the 2005 fraud was undertaken led Sir John Bourn, NAO auditor general, to warn: '[R&C] must ensure that the new system fully complies with established government standards on security.'
However, Leigh said that, due to the way that the R&C accounts for tax credits, 'we won't have a clue until 2008 at the earliest whether these [changes] have made any difference whatsoever.'
'In the meantime, the outlook remains dismal,' he warned.
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